Boeing Co.: This a Huge Breakthrough for Boeing Stock

By Alessandro Bruno, BA, MA Published : October 5, 2016

BA Stock to Gain as U.S. Treasury Opens Path to $17.0 Billion Deal

Boeing Co (NYSE:BA) has lost about five percent year-to-date. Much of that loss occurred in the first quarter of 2016 as the company dealt with some reporting-related issues over the production numbers for its “Boeing 787.”

Still, Boeing stock has started to recover. Prospects for the aerospace and defense sector remain strong and Boeing stock could experience a major surge thanks to a major bullish breakthrough.

There’s no arguing with the facts. Boeing stock lost more than 12% in Q1 of this year. But Boeing stock has started to recover steadily over the past few weeks. Down over five percent year-to-date, BA stock has gained 4.26% in the past three months.

Boeing Stock Is Still Trading Near Record Highs

Boeing shares continue to trade not much lower than their record-high $153.00 set in 2015. Late that year, rival plane-maker Airbus secured a $25.0 billion-or-thereabouts order for various airliners from Iran Air. That stole some wind from under BA stock. Iran’s order was one of the largest-ever recorded for airplanes. The question many were asking was whether Boeing could secure something like that.

The answer didn’t wait long to come. Last April, Boeing got a $17.0-billion (€15.1 billion) order from Iran Air. But the enthusiasm was muted because there were various political hurdles to overcome. BA stock barely moved. There were concerns that President Barack Obama or the U.S. Congress might veto the sale. Certainly, the anti-Iran-deal rhetoric from Republican presidential candidate Donald Trump hasn’t helped either.

But it turns out that the Iran deal is good for major American companies listed on the Dow Jones, like Boeing. Quietly, under the radar, about two weeks ago, U.S. authorities issued Boeing and Airbus export licenses, authorizing both companies to proceed with the sale of planes to Iranian airlines. (Source: “U.S. Allows Boeing and Airbus to Sell Planes to Iran,” The New York Times, September 21, 2016.)

Indeed, a shadow was always hanging over the Boeing deal in Iran. Now that Congress has approved it, Iranian airlines will likely be ordering even more planes. They have 37 years of catching up to do with their competitors across the Persian Gulf, which have built some of the most modern airline fleets in the world.

Boeing could only wait. Iran was going to be a huge opportunity. But to export sensitive technologies produced in the U.S., manufacturers must obtain the green light from the U.S. government.

What’s Surprising Is how Quickly Boeing Got the Approval

The bears feared that the deal would not even pass, let alone after barely seven months of deliberation. But the beauty of Boeing from the investment point of view is that a $17.0 billion order is just one of the bullish factors. Boeing’s order books are overflowing.

Full order books might cause logistical problems. There will be production delays, which the media will report, causing temporary dips in the stock price as the company copes to accelerate its production rate. But you need to have the production demand to have those delays! It’s a far more favorable prospect than empty assembly lines.

In practice, Boeing will have to obtain an export license for each aircraft sold to Iran. This implies having to specify, for each plane, the list of U.S.-origin equipment on board. The same is true for Airbus which, while European, uses many U.S.-made components, often including engines, depending on customer’s specifications.

Ultimately, Boeing can start by delivering more than 200 commercial aircraft to Iran in the coming years. And here’s the most bullish point: after four decades of embargoes, Iranian airlines are gasping for air [planes]! Some 80% of their entire medium- and long-haul planes have long been retired in just about every other market. The lack of spare parts has left many planes languishing in parking areas near the Tehran International Airport. All of those old planes must be replaced.

Iran is the hottest new airliner market anywhere.Tehran dreams of establishing a future commercial aviation hub, perhaps the main one in the region. It wants to compete with the likes of Gulf Air, Etihad Airways, Qatar Airways, and The Emirates Group. The example comes from Turkish Airlines, which has become one of the most important airlines in the Middle East, with Istanbul serving as a major hub between North America, Europe, and South Asia. The French ADP Group Ltd. has already won the contract to renovate the Tehran airport.

The aircraft needs of Iranian companies for the next 10 to 20 years are estimated at between 400 and 500 planes, according to the head of Iranian civil aviation. If Iran has not offered a persuasive enough argument why Boeing stock could attain a new high in the next few months, consider that passenger traffic is expected to increase by more than five percent per year for the next decade. That’s an additional windfall for Boeing, which already has enough orders to keep working steady for eight years.